This is the first in a series of "Asia Business Breakout" columns that the EO is publishing in partnership with CNN

By Pauline Chiou
 

When you ask investors where the smart money is going in 2012, it's no surprise "Asia" is the word you here in their first breath. Peel back the layers and you get different reasons: China, urbanization, emerging market potential.
 
At the recent Asian Financial Forum in Hong Kong, a panel of experts talked about where they believe the best opportunities lie.  Rona Yircali of the World Chambers Federation-- an organization of chambers of commerce – has been studying the urbanization trend. Yircali predicts 67 percent of global growth will be created in emerging markets by 2015. "Urbanization is very important in this (financial) crisis," he said. "In 2008, the urban population was 50 percent of the global population. Today in emerging market economies, there are 717 cities with a population of more than half a million. By 2030, there will be another 371 cities that will reach this size. By comparison, there are only 240 cities of this size in the developed world." Case in point: China. The Chinese government says more than half of its population now lives in cities rather than rural areas. A first in the country's history.
 
Urbanization requires infrastructure building. That's where John Rice, president of GE Global Growth & Operations, narrows his focus. He visits between thirty to forty countries a year scouting out investment opportunities. "We have to look at the business... like aviation vs. energy vs. health care in a region. We find a lot to like about Southeast Asia. We think those economies will continue to grow. There's a lot of interest in building out the infrastructure."
 
China is the big player in infrastructure investment even though Beijing is trying to gradually slow down its growth in a controlled fashion. With China's growth goal set at around 8 percent, there are plenty of opportunities for different sectors.  HSBC Group Chairman Douglas Flint says part of the attraction to China is that Beijing does what it says. The central government follows through on its stated plans. "They have a financial system which has the capacity to expand credit supply. There's a tremendous amount that can be done," Flint told the audience.  "There's been a lot of tightening over the last 2 years in terms of taking money out of the system to deal with inflation and bubbles in the property market. But unlike the western financial system, there's an under-lent financial market where there's credit capacity available if it can be released and it's beginning to be released again. So I think China has many of the monetary tools available to support investments in its own economy."
 
The tools may be there, but so is an underlying nervousness about China's official government figures on bank loans. A lack of public trust and transparency in those figures led to a sell-off of Chinese banking stocks last year. Nonetheless, Benjamin Pedley, head of Investment Strategies at HSBC Private Bank, sees opportunity here.  "One of the most beaten up spaces in China over the last 6 months or more has actually been the banking sector," he recently said on CNN's 'World Report'. "You've seen – not only the A shares but also the H shares in Hong Kong – coming under significant selling pressure. And I think that as we see monetary easing, as we see reserve ratio requirement cuts, that should be an environment in which those banks should start to do a little bit better. There's not many markets around the world where you want to be optimistic about financial stocks, but I think in terms of China, we can be cautiously optimistic for the next couple of months." Erwin Saft of BNP Paribas agrees that the banking sector holds promise but he cautions China still has a long way to go. "China needs to deregulate the financial sector and they're reluctant to do it," Saft tells me. "When they tighten credit, the wrong people are still getting the money."
 
While the U.S and Europe tackle their own growth problems, one Indian industrialist has his eyes firmly focused within Asia. K.K. Modi, chairman of the conglomerate bearing his own name, bluntly told the forum audience, "Indian companies are becoming multinational for the first time. They're not bogged down by western problems ... It's the right time for Asia to find an Asian solution and not look to the West at least for the next 3-5 years." While this comment may smack of protectionism, Modi is unapologetic saying there's a need for both China and India to invest more in each other. The main challenge is understanding China's confusing laws and rigid joint venture guidelines. The opportunities beckon in Asia, but no one ever said it would be easy.


Pauline Chiou is a CNN anchor/correspondent based in Hong Kong. Follow Pauline on Twitter @PaulineCNN. For more business coverage, go to www.cnn.com/business.